Bank weighed up higher rate rise

20 May 2004

Homeowners could have been faced with even higher mortgage repayments this month.

The Bank of England's Monetary Policy Committee discussed setting interest rates at 4.5 per cent, minutes from the meeting have shown.

All nine members voted unanimously for a more cautious quarter per cent rate rise at the Monetary Policy Committee's meeting earlier this month.

However, some members felt a rise by half a per cent was "warranted", feeling that the sudden increase might in fact put something of a dampener on household borrowing.

The minutes say: "The surprise entailed by a 50 basis point increase might help to moderate the continuing rapid rate of increase in consumer indebtedness by affecting the behaviour of both borrowers and lenders."

However, the report concludes: "Even a 50 basis point rise would not by itself dampen consumer borrowing to any marked degree."

In light of these findings most analysts now feel another rate rise may not be far away, with a possible hike to five per cent before the year is out.

The increase at the beginning of May was the third the Bank has made in the past seven months, all in a bid to curb the inflation threat.

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